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Thursday, 17 October 2013

Peak Oil... and EROEI... or Energy Return on Energy Investment

It is clear that oil extraction is going to become more expensive:Futures Forum: Peak Oil... and the oil industryBut what is 'more expensive'? What will happen to 'Energy Return on Energy Investment'?Will investors be willing to take on those risks? Will governments be prepared to subsidise such unattractive EROEIs?

Peak Oil analysis site The Oil Drum recently announced
it’s shutting down operations. Due to a dearth of new content, the management
decided to stop publishing new material after July 31, leaving the existing
content as a permanent archive. Naturally this evoked chortles of mirth from
the Wall Street Journal. Those dumb old gloom-n-doomers at The Oil
Drum, they speculated, were suffering crippling depression from the North
American fossil fuels boom in the Bakken shale and the Alberta tar sands.According to oil analyst Arthur Berman at Labyrinth Consulting Services, the
Bekken shale is a classic example of a bubble economy. Shale oil extraction
simply isn’t sustainable or self-financing. It requires enormous investor
financing to get the wells producing. Returns per well quickly decline, so
there’s no way to recoup that investment from production.Fossil fuel from deep offshore wells, shale and tar sands has one thing in
common: It’s costly and difficult to extract, bottom-of-the-barrel stuff, worth
bothering with only because the low-hanging fruit has already been picked.
There’s a technical term called EROEI — Energy Return on Energy Investment —
referring to the number of units of energy it costs to extract a unit of usable
energy from any given source. These new sources of oil all have very low energy
returns on energy investment. It takes a lot of energy to get just a little more
net usable energy at the end of the process.That means it’s only profitable when it’s heavily subsidized by taxpayers,
extracted from stolen land at government expense.Meanwhile, a recent IMF study found that simply eliminating government
subsidies to fossil fuels would reduce carbon emissions 13% worldwide. That’s
not even counting subsidies to specific forms of energy consumption, like the
U.S. civil aviation system and Interstate Highway System.If climate change is a real problem — and I believe it is — it’s not
something the government needs to fix. It’s something the government needs to
stop causing.